Coronavirus (or Covid-19) has has hit many people very suddenly and those who have not been able to put away savings for a rainy day are likely to be concerned at the possibility of needing to sell their home. We know that there isn’t a ‘one-size-fits-all’ solution and everyone’s financial situation is going to be different or have other challenges to factor. We have put together a few actions you can take to help you stay out of debt as much as possible. For homeowners, the main thing you want to avoid is the risk of repossession.
Mortgage holidays
Announced by the government, mortgage holidays are being offered if you contact your lender. There has been confusion about exactly who can apply and how the payment holidays will work. A mortgage payment holiday is when your usual monthly mortgage repayments are paused for a set period of time. The government has offered this for up to three months.
You’ll qualify for this support if:
- You’re up to date on your mortgage payments. If you’re in arrears, contact your lender and they’ll review and discuss options with you.
- Your mortgage is on your residential home, and in some cases on your buy-to-let mortgage for any other home you own (always check with your individual lenders).
- You do not need to have coronavirus, however they’re available if you’re concerned about your ability to meet your mortgage repayments. This could be if you’ve had a change in employment status or loss of work.
You need to be aware that you’ll end up paying more interest. So it’s not free! You’ll still owe the bank the same capital as you do now so your interest will continue to accrue. So it will take you longer and cost a little more to clear your mortgage. After 3 months, your lender will contact you to assess your circumstances and agree the best way for your to make up the deferred payments.
The government has assured homeowners that it wont affect their credit rating. However if you are looking to apply for a new or additional mortgage after this, there’s no guarantee that it won’t be visible on your credit file that you took a holiday which may affect new products available to you.
So you need to ensure that if you aren’t concerned about your ability to pay your mortgage, you should continue your repayments as normal. Don’t cancel your mortgage direct debit! It’s absolutely vital that you speak to your lender to request a holiday and not just simply cancel your direct debit. It would be considered a missed payment which would be registered on your credit file, potentially affecting your chances of remortgaging or borrowing further in the future.
Alternative changes to your mortgage
Applying for a mortgage holiday might not be the only change you may consider for your monthly payments. It’s a great time to be looking at your mortgage product to see if you’re on your best deal. Interest rates as incredibly low at the moment, so if might be worth considering some of the following:
- Move your mortgage to interest-only payments for a period. But ensure you understand the different between interest-only and interest and repayment mortgages and what it means for you at the end of the mortgage term.
- Change mortgage product. If you’re on a variable or tracker rate, now might be a good time to look at a fixed-term rate – many available at very cheap interest rates and often fixed for 5 years.
- Extend your mortgage term to reduce your monthly payments.
Review your Direct Debits
Have a look at what’s going out of your bank account on a monthly basis. Are there any annual or monthly subscriptions that you don’t need at the moment? Are there ‘nice-to-haves’ that you could do without for a few months? The more you can reduce this spending, the better. You could easily find yourself saving £100’s each month if you haven’t been reviewing your spending. Even if you aren’t struggling financially, it’s still good exercise to regularly review your expenses.
Credit cards and payments
If you have a balance on a credit card and are making monthly interest payments, it might be worth looking if there are other ways to reduce this cost. If you can’t afford to pay your balance off in full, it might be worth looking for a 0% balance transfer card. Transferring your balance may cost you a transfer fee, but it may work out cheaper to transfer the total and spend the money reducing your payments rather than spending it only on interest.
If your financial situation isn’t strong, be aware not to spend even more on your credit cards without having a a way to pay these off.
Council tax and utilities
Keep in touch with your council tax and utility providers as they may be able to help defer payments if you’re at risk of not being able to pay your monthly bills.
It’s likely they’ll ask you to make up these payments in the future, so while helpful for the short-term, you will have to find a way to cover the payments after the coronavirus pandemic is over.
Are you getting everything you’re entitled to?
If you’ve been made redundant, lost your job or have other circumstantial change, you should check what benefits you’re entitled to. Find out what you need to know be getting in touch with Citizen’s Advice Scotland or Job Centre. They’ll let you know what you can apply and claim for to help tide you over.
Additional jobs
There are many companies that are currently recruiting, such as supermarkets, the NHS, farms and local produce companies. Be aware that if you have been furloughed, you may not be able to take on a secondary job depending on your original contract. But you should speak with your boss before taking on another job as you are still their employee. You also should be able to work outside the hours you normally do with your original job – but you will need to check first. Citizen’s Advice Scotland may be able to give you further information.
If you need to sell your home
It is a tricky time to sell as the Registrars of Scotland have stated that only sales which otherwise would result in ‘hardship’ should proceed. This could mean if you’ve already agreed the sale and won’t be able to pay two mortgages, or will be made homeless etc. then sales may be able to proceed. The challenge is with registering the mortgage security so if you needed to sell your house fast, then a cash buyer would be a much more secure option.
Get in touch if you want to discuss your personal situation and how we can help.
